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Charitable giving helps everyone

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Joseph Ortiz

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Posted: Sunday, December 11, 2011 11:03 am

To participate in the spirit of the holiday season, you may be thinking of making some charitable gifts. If so, you'll no doubt enjoy helping a group that does valuable work.

But to begin with, it's important to understand just how necessary your gifts are to the country's social fabric.

Given the effects of the Great Recession and the slow recovery, it's not surprising to learn that charitable giving fell a combined 13 percent in 2008 and 2009, after adjusting for inflation, according to The Center on Philanthropy at Indiana University.

And although 2010 giving increased by 2.1 percent, again adjusted for inflation, many groups are seeing tough times as 2011 comes to a close. So your gift counts.

And it can count for you, too. By contributing to a qualified tax-exempt organization (e.g., a charitable group that has received 501(c)(3) status from the IRS), you may earn valuable tax deductions. This is true whether you give cash or another type of asset, such as stocks or real estate.

And you may be able to get further tax benefits if the noncash asset you've donated has appreciated in value since you purchased it.

Making charitable gifts now may help you reduce your taxable estate.

As you may know, the estate tax exemption level has fluctuated in recent years, so it's hard for any of us to say for sure that we won't be subjecting our estates to these taxes.

However, that doesn't mean you can't take steps now to plan for possible future estate taxes.

One such step might involve establishing a charitable remainder trust. Under this arrangement, you'd place some assets, such as stocks or real estate, in a trust, which could then use the assets to pay you an income stream over a certain period of time.

When you establish the trust, you may be able to receive tax benefits based on the amount the charity is likely to ultimately receive, the charitable group's so-called "remainder interest." Upon its termination, the trust would relinquish the remaining assets to the charitable organization you've named.

Keep in mind, though, that this type of trust can be complex; to establish one, you'll need to work with your qualified tax advisor and estate-planning attorney.

Another popular contribution vehicle is the "donor-advised fund." Here's how it works: You give cash or appreciated securities to the donor-advised fund, with the expectation of receiving a tax deduction for the contribution in that same year.

You recommend which charities are to benefit from the contributions to the fund, and the fund invests and manages your contribution, along with the other assets in the fund.

Again, you'll need to consult with your qualified tax advisor before establishing a donor-advised fund to help ensure you obtain any expected tax benefits.

As we've seen, you can follow different charitable giving strategies. But however you choose to make charitable gifts, you can take satisfaction in helping worthy organizations while possibly improving your own tax picture.

• This article was written by Edward Jones for use by Ahwatukee Foothills Edward Jones Financial Advisor Joseph B. Ortiz, CRPS. Reach Ortiz at (480) 753-7664 or Chartered Retirement Plans Specialist and CRPS are registered service marks of the College for Financial Planning.

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